The Monetary Policy Committee of the central bank on Tuesday said it has decided to retain the bank rate at 5 percent.
The decision, according to a statement from the bank was made in recognition of the current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the objective range of 3 ÔÇô 6 percent in the medium term.
A few days after the MPC meeting, government statistics agency released Consumer Price Index (CPI) data indicating in January 2018, headline inflation fell to 3.1 percent from 3.2 percent in December 2017.
The decision to maintain the policy rate was however taken based on the December 2017 inflation which increased from 2.9 percent in November to 3.2 percent.
Bank of Botswana said on Tuesday that subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term.
“This outlook is subject to upside risks emanating from improving global economic activity and the rise in commodity prices beyond current forecasts. Furthermore, any substantial unanticipated upward adjustment in administered prices and government levies and/or taxes also present upside risks to the inflation outlook”, reads part of the MPC statement.
Meanwhile the bank also said the outlook for price stability remains positive as inflation is forecast to be within the 3 ÔÇô 6 percent objective range in the medium term.
Botswana’s Gross Domestic Product (GDP) GDP is projected to expand in the short-to-medium term, driven largely by the recovery in mining activity.
Furthermore, the projected accommodative monetary conditions in the domestic economy and expansion in government expenditure in the 2018/19 fiscal year, as well as stability in water and electricity supply, are expected to 2 support growth of the non-mining sectors. Overall, the economy is expected to operate close to, but below capacity in the medium term.